For the fourth month in a row, Bank of England interest rates will remain at the record low of 0.5%. In an announcement today, the UK's central bank said it would not expand its quantitative easing of financial markets, much to the surprise of the market. The bank has been buying up assets aggressively, printing cash to finance what is likely to be £125 billion in purchases by the end of this month.

Financial markets expected a much different play, involving an increase in this asset purchase target by another £25 billion (to £150 billion). This move would have let the Bank of England shove even more money into the economy through next month, which is when the bank publishes its latest quarterly economic forecast.

Continue reading Bank of England surprises: No expansion of quantitative easing

Bank of England surprises: No expansion of quantitative easing originally appeared on BloggingStocks on Thu, 09 Jul 2009 11:30:00 EST. Please see our terms for use of feeds.

The Fed is scheduled to announce the results of its latest rate-setting meeting at 2:15 this afternoon. Most analysts expect it to cut rates -- at least 25 basis points (100 basis points = 1%). I'm just not sure I understand why the Fed keeps cutting.

There are two reasons that come to mind as possibilities. First, the stock market seems to love hints that the Fed will cut interest rates. Since the summer, whenever the stock market fell a few hundred points, Ben Bernanke or another Fed governor would give a speech using key words such as "flexibility" and the stock market would rally. That's what happened a few weeks ago when the Dow dropped below 13,000 and it magically rallied 750 points.

A second reason is that the Fed thinks that a recession is in the forecast due to a freeze up in the credit markets, and that it's better off cutting rates to ease the pain. If a doctor had only one kind of medicine -- say, aspirin -- then the doctor would prescribe it to all patients, because it was better to give the patient something than nothing at all. This approach would work if the patient had a headache -- but it would be less effective if the patient had cancer.

Continue reading Why is the Fed cutting rates?

Why is the Fed cutting rates? originally appeared on BloggingStocks on Tue, 11 Dec 2007 07:54:00 EST. Please see our terms for use of feeds.

Investors awaiting Tuesday's expected interest rate cut seem to be forgetting that Fed Chairman Ben Bernanke is an economist. He isn't a magician.

E.S. Browning of the Wall Street Journal (subscription required) argues pretty persuasively that investors may be pinning "too much hope" on the rate cut.

"...such a rate cut would offer little immediate help for the fundamental problems weighing on the nation's economy and financial markets," he writes. "These include a worsening housing slump and high gasoline prices, which are damping consumer spending, and fears of further defaults on the billions of dollars of low-quality loans that have been used to finance mortgages and corporate takeovers."

Of course, investors will be over the moon after the rate cut is official and send the stock market skyrocketing. But don't order the champagne yet. Goldman Sachs Group Inc. (NYSE: GS) Chief US Economist Jan Hatzius told the Journal that the impact of the rate cut may not be as great as it was in 1998 when, unlike today, the economy's major problems originated outside the U.S.

In addition to waiting for puffs of white smoke from Bernanke & Co., investors will be paying close attention to the Wall Street firms. including Goldman, Merrill Lynch & Co. (NYSE: MER) and Lehman Brothers Holdings Inc. (NYSE: LEH), that report earnings this week, to see how ugly things have gotten.

Of course, markets don't stay in panic mode forever but remember it took years for the subprime mortgage crisis and credit crunch to develop. A single act by the central bank can't solve these problems overnight. Investors need to set their expectations accordingly.

Ben Bernanke doesn't have a magic wand originally appeared on BloggingStocks on Mon, 17 Sep 2007 07:30:00 EST. Please see our terms for use of feeds.

Continue reading It's not easy to sell your home anymore

It's not easy to sell your home anymore originally appeared on BloggingStocks on Mon, 20 Nov 2006 16:53:00 EST. Please see our terms for use of feeds.